Dubai as tax free emirate?

Every time you tell a foreigner that Dubai is tax free, it’s normal for them to ask you this question “Is Dubai really tax free?”. This disbelief is due to the fact that all developed and developing countries have a tax system and finding out that you don’t pay tax in Dubai is something hard to believe. To handle this scenario, Prospr has decided to provide you a detailed answer of all the questions you have regarding tax such as:

• Is Dubai really tax free?
• Why is Dubai tax free?
• How much tax do you pay in Dubai?

So, let’s find out all the answers regarding taxes in Dubai below but we would like to talk about the elephant in the room first.

Is Dubai tax free?

Well, the answer is yes. Dubai is tax free.

• There is no income tax.
• There is no withholding tax.
• There is no inheritance tax.

If you run a small or medium scale company in Dubai, you enjoy 100% corporate  tax exemptions.However, when you own a large company where annual turnover is 1 million, be ready to pay 9% corporate tax.

Do you pay income tax in Dubai?

The answer is no, you don’t pay any income tax regardless of how you earn your money.

According to the Dubai government, they didn’t plan to apply any income tax or comparable private tax.Whether you are an employee or earning income from stock trading, you will be 0% income tax to authorities.

If you hold a UAE Residence visa and don’t have any official residence outside UAE, your private income is 100% tax free in Dubai.

Is there VAT in Dubai?

Yes, there is 5 percent VAT in Dubai. End consumer needs to pay 5% VAT on purchase of all goods and services sold in Dubai.

Companies need to register for VAT when their turnover exceeds 90,000 euros.  Once you register, you need to add VAT in your invoices. Another thing to keep in mind is that this VAT is applicable only on national transactions, as international transactions are 100% tax free in Dubai.

Is there Corporate Tax in Dubai?

A 9% Corporate tax introduced in Dubai from August 2023 on companies with turnover exceeding 3 million AED and annual profit more than 375,000 AED. If you check this scenario, you find out that there is 0% corporate tax if profit is below 375,000 AED or when your company turnover per year stays at 3 million.

Here are some things you need to know about corporate tax in Dubai.

Corporate tax registration in Dubai- Whether you set up a company in the Dubai free zone or mainland, you must have to register your company for corporate tax.

Small business relief- Let’s say you run a small business where your annual turnover exceeds AED 3 million then you can apply for small business relief. So, you can enjoy corporate tax exemption. However, this relief is available to small companies till 2026. Even when your business is exempt from tax, you must submit a tax return file with authorities.

Do free zone companies pay tax in Dubai?

There is a list of qualifying activities in the free zone with 0% corporate tax. However, if you want to know whether your free zone is qualified for tax exemption or not, then you need to contact your FZA- free Zone authority. The Ministry has given FZA complete authority on setting tax exemption criteria for free zones. 

Understanding free zone tax regime 

If you are planning to setup a company in Dubai free zone just because you want to enjoy 0% corporate rate then you need to have complete understanding of free zone tax regime.

What is a free zone tax regime?

It is a UAE corporate tax relief form that allows free zone companies and branches to enjoy relief from corporate tax and get preferential treatment of 0% corproate tax on qualifying activities and transactions.

Now this preferential treatment is available for free zone persons. So, next thing you need to understand.

Who is a freezone person in Dubai?

A free zone person is a legal entity registered in a freezone. It could be a UAE mainland company or foreign legal entity registered in a free zone area. It also could be a foreign entity that is incorporated in a free zone. Only free zone persons can take advantage of the free zone tax regime. 

Is there Property tax in Dubai?

Yes, there is a 4 percent land register fee that you will pay to the Dubai land department during property transfer. If you own a commercial property and give it on rent, then you will pay 5% tax on its annual rental value as a property owner. Tenants will pay a housing fee, which is a 5 percent tax on residential properties.

Why is Dubai tax free?

After looking deep into corporate and income tax of Dubai, you have realized that Dubai is tax free. Now the question is why the government has made the UAE a tax free zone. Let’s get the answer.

Dubai, and the United Arab Emirates (UAE) as a whole, is known for being largely “tax free” in terms of personal income tax. This policy is part of a broader economic strategy to attract businesses, investments, and skilled labor to the region. Here are some key reasons why Dubai maintains a tax free environment:

Economic Diversification

Economy of Dubai largely relies on oil revenue. UAE governments planned to reduce this dependency on oil revenue and thereby introduce zero income tax policy. This policy is a magnet for multinational companies, foreigners, and highly skilled laborers. They don’t want to pay income taxes in their countries, as a result this policy boosts their interest in Dubai where they move to save tax money.

Competitive Advantage

Every country wants to attract potential entrepreneurs and investors and it’s common to introduce investor-friendly policies. However, Dubai has gone so far in getting the attention of investors and international talent as this tax free policy turns into a competitive edge Dubai has over their countries.

Revenue from Other Sources

Although Dubai is tax free on personal income, it still has 9 percent corporate tax, and 5 percent VAT and real estate taxes. Dubai might not be making money from entrepreneurs, but it’s earning a hefty amount of money from other sources of income.

Promotion of Higher Disposable Income

Although entrepreneurs, small companies, and individuals aren’t paying income tax yet they are using their savings on fuel consumption, real estate investment and other economies activities within emirates. This tax free approach is quite helpful in transforming Dubai into a global village where people around the world land for setting up a business, investment, and availing other business opportunities. So, charging no tax on income is unlocking countless benefit for UAE in long run.

How much tax do you pay in Dubai?

Finally, you understand that you pay no income tax or corporate tax in Dubai unless you own a company with more than AED 3 million turnover or AED 375,000 profits. Every consumer in Dubai will pay 5 percent VAT and 4 percent housing fee annually (as a tenant) or 5% property fee (as property owner). 

Do you still have some questions about Dubai being tax free? If yes, then feel free to contact Prospr. We answer all your queries. If you want to make the most of the free zone tax regime, our business consultants are always here to guide.

Book a consultation now!